Financial Security
Financial Security is not being rich, or wealthy, it is being financially secure.
Financially secure is not to be rich or wealthy, it is to have enough money to live comfortably and be able to look into the future and know that you have enough money to live reasonably well without worrying about paying the bills even if they go up.
HOW TO BE FINANCIALLY SECURE
To become financially secure, you must have enough sources of money to "finance" your lifestyle. The money comes from:
1. Your job and any business(es) you have "on the side".
2. Rental income [if renting, check with your landlord before renting out a spare bedroom].
3. Equity loan from your house or condominium.
4. Savings. Get on a regular savings plan. Quit bad habits and save the money.
5. Credit cards [only for emergencies].
6. Investments [use banks that give high interest rates, also invest in the stock market & mutual funds].
7. Health insurance :Qualified Health Plan (not an insurance) - $90/mos. individual and $120/mos. for families; see www.Qhealth.com ; also see: www.cinergyhealthplans.com (this is health insurance $5/day for individuals, more for families). Also look at a recent new comer: www.americans4healthcare.com for a discount medical/dental/pharmacy, etc. plan for less than $3 / day (not health insurance though).
For The Retirement Years:
8. Have home paid off, no mortgage.
9. Pension [if your job has one associated with it].
10. Social Security [if you worked enough "quarters" to get it - 1 quarter is 3 months in a row. You MUST have 40 quarters to qualify to get S.S. at 62, 66 or 70 [40 quarters in a row would be 10 years straight]. The age you can take it depends on when you were born. The amount you get depends on how much money you got paid and thus paid in social security taxes. If you take it at 66 you will get more than if you take it at 62 (and more if you take it at 70)]. Also every year you wait to take it up to age 70, your benefits will be increased by 8% more. So if you can wait to take it at 68 you will get more than at 66. Contact the S.S. 6 months before you intend to sign up for it. You can sign up for it online at www.ssa.gov
Your employer pays 1/2 of your social security payment and you pay the other 1/2 as deductions from your paycheck [w-2 form gives # of deductions]. Self employed people pay 100% of their S.S. payments [they fill out a Schedule SE form to figure out their S.S. payments that they pay as part of their IRS taxes every year]. No matter what you hear about social security going bankrupt DON'T Believe it. Social security taxes only tax up to $75,000 income thus far. It used to only be up to $60,000 a few years ago. Since incomes can be up to millions of dollars a year then obviously, it can go a lot higher, thus giving more social security monies to the retired. There will ALWAYS be enough money for social security. So GET YOUR QUARTERS.
11. You can still work part time after you sign up for S.S. but there are rules for how much you can make without reducing your benefits. Earnings In or After the month you reach your full retirement age (depends on your birthdate - 66 if your birthdate is between 1943 and 1954; 1960 or later it is 67) won't affect your Social Security benefits (amount you get every month). So you can make as much as you like while still collecting S.S. without getting less in your monthly S.S. check after you reach your full retirement age (the earliest age you can file for S.S. benefits is 62 but you'll only get 75% of what you'd get at your full retirement age; you'll get more for every year you wait to take it up to a max at age 70). See books on Social Security from www.amazon.com.
12. Rent out a spare room or basement. REMEMBER: always have them sign a written rental agreement. Write down all the rules of the house on that agreement, including when they must pay rent and how much. Also include whether you rent by the week or the month. If you rent by the week, you MUST give them 2 weeks notice before you can evict them. If you rent by the month, you must give them 1 months notice to evict them (unless they don't pay the rent and then you can give them 2 weeks notice). After the eviction notice (officially called a NOTICE TO QUIT), if they don't pay rent, then you can take them down to the housing court at the local district court and get them evicted by Summary Process (ask for it by name).
13. Get a reverse mortgage, when you are 62. Most banks handle them. You get a monthly amount that is based on the FMV [fair market value of you home at the time] for a certain number of years [15 years] and then after that you get to live in it until you die [check with the bank if you can do so, otherwise you're "out on the street"], but the bank owns it entirely and you can't leave it to your children unless you pay off the mortgage. With the HECM (the U.S. federal program) you can now PURCHASE a home. The house or condo MUST be able to qualify for an FHA appraisal. In some states Bank of America allows you to purchase a home with their reverse mortgage product as well. With the Bank of America one, you can refinance it if the house increases in value down the road (unlike with the HECM product.
14. When you get to be 65 if you qualify for getting Social Security benefits, you automatically can get Medicare. Medicare Part A pays for hospitals (you do have co-payments though). Medicare Part B pays for out-patient doctor visits and medicines (again, there are co-payments). Contact Social Security at least 3 months before your 65th birthday to sign up [contact S.S. at least 3 months before you sign up for S.S. benefits as well]. It is wise to sign up for medicare during this 3 mos. before and 3 mos. after your 65th birthday for Medicare Part B or else you will have to pay more for it. Medicare Part A covers hospital costs; Medicare Part B covers out of hospital doctor's and medicine costs. You pay a monthly deductible for Part B that is taken out of your monthly social security check (it's now about $96.40 / mos; as of Jan. 2001). which is cheap for such medical insurance coverage and thus a bargain). Contact the Social Security Administration at your local S.S.A. office or on their website: www.ssa.gov also: www.medicare.gov Also check into SSI (Supplemental Insurance) and Food Stamps.
15. If you were lucky to work at a job with a pension, 401 K plan, great. If you are self -employed look into a KEOUGH plan to contribute to your retirement. With a 401 K plan your employer contributes a certain amount to your savings. This contribution becomes yours after 3 years. You can also "roll over" your 401K plan into an IRA. The 401K account is invested by the company (you can determine in what investments your money goes to) from no risk investments; ie, CD's, US Treasury Notes, all the way to high risk Stocks, etc.
16. An IRA gives you tax deferred benefits to save for retirement. You can contribute up to $5000 a year ($6000 if you are 50 or older) into an IRA and not pay taxes on it (the IRS gives you a deduction). This money can only come from EARNED INCOME not rental income or investment income. Then when you reach 59 1/2 you can start to take money out (stiff penalties if you take it out earlier, so don't put it in if you might need it earlier on). You pay taxes on it when you take it out. Of course after you retire you'll be in a lower tax bracket and have to pay less income taxes on it.
There are TWO types of IRA's: Traditional and Roth. With the Traditional IRA you can deduct the amount you put into it and not pay IRS income taxes on it (you pay income taxes when you take it out - when you are in a lower tax bracket). Your earned income must be equal to or greater than your annual contributions. With the Roth IRA you pay IRS income taxes on your annual contributions to it but you don't pay IRS income taxes on it when you start taking it out. With a Roth IRA you don't have to pay early withdrawal penalties (before 59 1/2) but there is a waiting period to withdraw without penalty. You can open an IRA at any number of banks and also at ING DIRECT bank (Ingdirect.com). The IRA is insured by the FDIC just like any bank account or CD.
17. An annuity is a good idea to "park" your savings and get a good interest rate. Some annuities are only for 10 - 15 years. The Catholic Church has a Charitable Gift Annuity that gives a great interest rate for LIFE. Call 1-800-442-6392 or online at cnewa@cnewa.org (at age 65: 5.3%; 70: 5.7%; 75: 6.3%; 80: 7.1%; 85: 8.1%; 90: 9.5%)
18. A Reverse Mortgage (at 62 at the earliest, you can qualify for a reverse mortgage from the Federal Govt. - HECM [home equity conversion mortgage] or from various lenders: Bank of America, AARP, etc.) gives you money from the equity in your home. You get a certain sum if you take it at 62 and more if you take it at an older age. Bank of America reverse mortgage lets you take at 62 and then refinance at an older age to take out more equity that is left or that might have built up. YOU NEVER have a monthly payment to pay back. You get an Line of Credit and you just write checks for the amount you want whenever you want to - until the money runs out. You can even get interest on your unwithdrawn balance. You get to live in your home for the REST of YOUR LIFE even after the money is all withdrawn. After you die, the lender (USA or bank) then takes the house and sells it and gets paid back. If your house has say $200,000 equity then at 62, HECM will get you about $124,000.
You can combine the Reverse Mortgage with buying a Foreclosed Home at a great discount. Say your present home has $200K worth of equity and that you get a standard equity loan from the bank for $80,000. Then you can go out and buy a $250, 000 appraised house at the foreclosure price of $80K. Then get a HECM reverse mortgage (or the Bank of America one or the AARP one or another one) on the new house for $180K say. As you can see, you will be able to pay back the standard equity loan ($80K) and put $100,000 in your pocket. If you use the HECM one, you will have to live in the new home. So you must move in and then rent out the old house. You could even pay off the mortgage on your old house this way. You merely get an equity loan that is enough to buy a foreclosed house and then get a reverse mortgage on the new house and use the money to pay back the equity loan and also to pay off the mortgage. THis way you get two houses PLUS money (tax free) in the bank. Combine all that with social security, medicare plus the rent you get from having an extra house and you can retire very well.
BE AWARE OF THE TAX (IRS) ISSUES AND THE LEGALITIES INVOLVED WITH THESE SOURCES.
G R E A T L I N K S :
www.aarp.org for games and info for retired folk (when you get to the site, type in "games" in the search window at the top)
www.ingdirect.com (Ing Direct Bank has a 2.75% online Orange Savings Account and 4.25% CD's that pay the interest monthly, directly into your orange savings account) www.emigrantbank.com (Emigrant Bank has a 2.75% online savings account)
www.rsal.cz (Royal Savings And Loans offers CD's with up to 4.0% interest). RSAL has drastically reduced the interest on its CD's so right now its not such a great investment as of Jan. 2010. Maybe it'sll give more in the years to come. This one is one to watch. www.irs.gov (This is the official IRS site where you can download forms and instructions and applications for a job with the IRS)
www.mlnbank.com (Millenium Bank out of Switzerland that set up shop down around the Caribbean offers what they call a Premium CD that pays from 5.5% interest all the way up to 7.5% interest. The only problem is that it ISN"T insured AT ALL. So you have to take your chances on this one). WARNING: this bank just doesn't seem to exist anymore (as of Jan. 2010). This is a good example of what can happen if you invest with the wrong people. BEWARE of "Fly By Nighters".
www.yahoofinance.com (This is the Yahoo finance site that gives you info on stocks, dividend stocks and mutual funds and lets you set up a practise portfolio to see if you can pick the right stocks to make some money on the stock market) www.clearstation.com (This is like the Yahoo site, set up a practise portfolio here too) www.money.com (This is a great site for all sorts of info about student loans, mortgages, interest rates, stocks, etc.)
www.scottrade.com (Buy or Sell stocks and keep them on a portfolio and get info on the stock companies all for $7 / trade. This is a good price compared to many such companies). Feel free to try the links you see on the websites above, maybe you can find other websites of interest to you. WARNING: Stocks can go up or down and you can make $$ or lose it. Companies can go bankrupt or lose investor support and you can LOSE YOUR MONEY.